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Ron Baron's Firm Goes Shopping With Shopify

A look at the top 1st-quarter trades of Baron Funds

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May 16, 2022
Summary
  • Ron Baron's top new buy for the quarter was Baidu.
  • The firm also added to Shopify and Spotify and reduced its holdings in RingCentral and Alphabet.
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Baron Funds recently released its 13F portfolio updates for the first quarter of 2022, which ended on March 31.

Founded by

Ron Baron (Trades, Portfolio) in 1982, Baron Funds is a long-term asset management firm that invests in well-researched value opportunities led by quality management teams. The firm seeks to ignore short-term market fluctuations as long as they do not change a company’s fundamentals. Baron manages the Growth and Partners funds and co-manages the Asset Fund, with a preference for small and mid-cap companies that might be struggling now but which demonstrate strong competitive advantages and growth prospects.

Based on its latest 13F filing, the firm’s top five trades for the quarter consisted of a new buy for Baidu Inc. (

BIDU, Financial), additions to Shopify Inc. (SHOP, Financial) and Spotify Technology SA (SPOT, Financial) and reductions to RingCentral Inc. (RNG, Financial) and Alphabet Inc. non-voting shares (GOOG, Financial).

Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.

Baidu

The firm established a new stake worth 874,279 shares in Baidu (

BIDU, Financial) after selling out of its previous investment in the company in the first quarter of 2019. The stock makes up 0.28% of the equity portfolio at the quarter’s average share price of $151.

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Baidu is a Chinese internet and technology giant that specializes in artificial intelligence, internet services, search engines and related products. It has access to the world’s largest domestic addressable population of Internet users.

On May 16, shares of Baidu traded around $118.10 for a market cap of $40.92 billion. According to the GF Value chart, the stock is modestly undervalued.

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The company has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. Warning signs include declining operating margins and assets growing faster than revenue, while positive signs include revenue per share growth and price-book and price-sales ratios close to 10-year lows.

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Shopify

The firm added 152,554 shares to its stake in Shopify (

SHOP, Financial) for a total of 354,147 shares, adding 0.25% to the equity portfolio. During the quarter, shares changed hands for an average price of $822.89 apiece.

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Shopify is a Canadian multinational e-commerce company that owns a proprietary e-commerce platform of the same name. Its platform enables businesses to easily create online stores or add online stores and retail point-of-sale systems to their existing operations.

On May 16, shares of Shopify traded around $359.95 for a market cap of $45.01 billion. According to the GF Value chart, the stock is significantly undervalued.

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The company has a GuruFocus financial strength rating of 9 out of 10 and a profitability rating of 4 out of 10. Warning signs include a high price-earnings ratio of 372.45 and a Sloan ratio that indicates poor quality of earnings, while positive signs include a three-year revenue per share growth rate of 50.3% and a three-year book value per share growth rate of 64.5%.

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Spotify Technology

The firm also increased its Spotify Technology (

SPOT, Financial) holding by 658,687 shares for a total investment of 1,774,545 shares, adding 0.24% to the equity portfolio. Shares traded around $171.13 apiece during the quarter.

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Spotify is a Swedish technology company that offers music streaming services worldwide. It offers both subscription-based ad-free streaming and free ad-supported streaming.

On May 16, shares of Spotify traded around $101.05 for a market cap of $19.47 billion. According to the GF Value chart, the stock is significantly undervalued.

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The company has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 4 out of 10. Warning signs include weighted average cost of capital being consistently higher than return on invested capital, which is a sign of value destruction, while positive sings include a solid Piotroski F-Score of 7 out of 9 and a three-year revenue per share growth rate of 19.5%.

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RingCentral

The firm reduced its investment in RingCentral (

RNG, Financial) by 967,271 shares, leaving a remaining holding of just 21,825 shares. The trade slimmed the equity portfolio by 0.38% at the quarter’s average price of $147.59 per share.

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Based in Belmont, California, RingCentral is a provider of cloud-based communications and collaboration solutions for businesses. Its offerings include message, video, phone and contact center services for small businesses, larger enterprises, service providers and developers.

On May 16, shares of RingCentral traded around $62.58 for a market cap of $5.94 billion. According to the GF Value chart, the stock is a possible value trap.

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The company has a GuruFocus financial strength rating of 3 out of 10 and a profitability rating of 3 out of 10. Warning signs include operating and net margins in the negatives range and a distressed Altman Z-Score of 1.64, while positive signs include a three-year revenue per share growth rate of 27.1% and a price-sales ratio close to the five-year low at 3.6.

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Alphabet

The firm slimmed its Alphabet Inc. (

GOOG, Financial) stake by 33,275 shares for a remaining investment of 82,312 shares. The trade reduced the equity portfolio by 0.20%. During the quarter, shares changed hands for around $2,718.53 apiece.

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Based in Mountain View, California, Alphabet is a multinational conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.

On May 16, shares of Alphabet traded around $2,295.85 for a market cap of $1.51 trillion. According to the GF Value chart, the stock is modestly undervalued.

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The company has a GuruFocus financial strength rating of 9 out of 10 and a profitability rating of 10 out of 10. Warning signs include a declining gross margin and low earnings power value, while positive signs include ROIC being consistently higher than WACC, indicating value creation.

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Portfolio overview

As of the quarter’s end, Baron Funds held shares in 387 stocks in an equity portfolio valued at $40.74 billion based on the 13F filing. The turnover for the quarter was 4%.

The top holdings were Tesla Inc. (

TSLA, Financial) with 15.34% of the equity portfolio, Gartner Inc. (IT, Financial) with 3.85% and IDEXX Laboratories Inc. (IDXX, Financial) with 3.33%.

By sector, the firm’s portfolio had the highest weightings in consumer cyclical, technology and financial services.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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